Government borrowing exceeded forecasts in August, but not in a good way.
Public net borrowing was £13.7bn in August, which was higher than the £11.2bn that the Office for Budget Responsibility (OBR) forecast. The debt ratio also hit 100% of GDP, according to the ONS. This is the third consecutive month that borrowing has overshot forecasts. Borrowing is running at about £7bn higher than forecasts since the fiscal year started in April.
This was largely attributed to increased spending on benefits, caused by increasing them in line with inflation, as well as other government running costs.
A crumb of good news is that the cost of servicing the UK’s debt fell by £100m to £5.9bn. This was the fourth consecutive month of reductions caused by a fall in the RPI inflation measure. More tax was also collected in August (I know, I can’t believe it either) compared with 2023. Whilst VAT, income tax and Corporation Tax receipts all rose, National Insurance receipts fell, due to the reduction introduced by the previous Conservative government.
Rachel Reeves, the chancellor of the exchequer, has been given a £10bn boost, as the Bank of England has said it will be selling fewer bonds back to the markets, which will temporarily reduce losses covered by the Treasury.
Some are urging Ms Reeves to ease or cancel the cut to the winter fuel allowance as a result of the ‘extra’ £10bn, but this would appear unlikely as she apparently has a “black hole” to attempt to fill.
